In the event of an account delinquency, a typical credit-card agreement for a small-business credit-card account grants the card-issuing bank the right to garnish—without notice—the credit-card holder's funds held in deposits at the card-issuing bank to pay off delinquent credit-card balances. This is commonly referred to as an “offset action.” An offset action is the last resort for a card-issuing bank in its effort to collect payment towards a delinquent credit-card account. When a small-business credit-card account meets the terms for an offset action, it is at the bank's discretion whether and when the offset action will be executed. Notice to the card holder/guarantor is not required before executing the offset action.
When a delinquent small-business credit-card account enters the offset-action process, a collection associate at the card-issuing bank searches for the deposits accounts that the small-business credit-card holder/guarantor has in the card-issuing bank. Once the deposits accounts are identified and the offset-action proposal is approved, the next decision to be made is when to execute the offset action and thereby garnish funds from the deposits accounts. This offset-timing decision is critical to maximize the final amount collected in an offset action because small-business deposits-account balances sometimes shift, either upwards or downwards, dramatically from day-to-day or even from hour-to-hour.
Currently, there are two approaches for offset timing: (1) an upon-approval approach, and (2) the trigger-event approach. In the upon-approval approach, a collection associate can execute an offset action as soon as possible after the offset proposal is approved. For example, a collection associate accesses the delinquent card-holder's deposits account and—at no particular time—transfers the available balance or the credit-card delinquent amount, whichever is less, to the small-business credit-card account. The collection associate then records the transfer as a payment towards the credit-card balance in delinquency. Because account-balance fluctuations are common and because the collection associate takes action as a matter of course, not at a strategically scheduled time, a deposits account may be at its low-balance point when the offset action is taken. Accordingly, the upon-approval approach may miss a lot of funds that could have otherwise been collected and applied as a payment towards the credit-card balance in delinquency.
In the trigger-event approach, although approval of an offset proposal is required before a collection associate can execute an offset action, approval alone is not enough. The approval must be followed by a trigger event before the offset action can be executed. Accordingly, in this approach, an offset action is triggered upon the occurrence of a trigger event. For example, per the trigger-event approach, after offset approval, the collection associate monitors the day-end account balance of the deposits account on a daily basis and executes an offset action only when the day-end account balance meets or exceeds a certain threshold, e.g. a preset amount or a preset percentage of the delinquent credit-card balance.
While this approach is more advanced than the upon-approval approach, as described above, it still commonly results in sub-optimal offset amounts. For example, a sub-optimal offset action occurs when a trigger event triggers an offset action, but, after the trigger event, the credit-card holder withdraws funds before the collection associate has a chance to execute the offset action and garnish funds from the deposits account. Also, for example, per trigger-event approach, an offset action may never occur because the trigger event may never occur. For example, if a deposits-account balance never meets the preset threshold, the offset action is never triggered.
Typically, a bank may only have one chance to execute an offset action because, after the offset action, the delinquent consumer may withdraw all remaining funds (if any remain) and terminate its banking relationship with the bank. Accordingly, when executing an offset action, it is desirable to maximize the amount of funds garnished in a single offset action. However, when applying known approaches, garnishing the maximum amount is difficult because customers' deposits-account balances frequently fluctuate, and it is difficult to time the offset action such that the offset action occurs when the account is at a high-point balance.